The Village Blog

Spotify, Apple Music, and YouTube are leading the tech takeover of the music industry while labels are struggling to find their way.

In 2012, when EMI sold to Universal and Sony, then-CEO Roger Faxon told reporters that "major record labels, if they ever were, are no longer the gatekeepers. It's the music that matters, not the source anymore. You don't have to have a [major label] to produce an album anymore. The power now is with consumers, not labels."

The gatekeeper analogy is quite befitting. Without getting signed to a label, artists were once all but lost- dealing with the costs and complexities of recording, pressing, and distributing an album was just too much. And Savon’s comments were right- the major labels definitely are not the gatekeepers anymore. But if you follow the trail to see where the former EMI exec moved next, you can see that the music industry is just replacing one gatekeeper with another. Today, Faxon sits on the board of Pandora, one of a few giants in music streaming, an industry that will enjoy far more control over the music industry than the labels ever had.

Faxon knowingly smirking after making the move from label to tech

He’s not alone. Over the past few years, the streaming platforms have been poaching music industry execs left and right. Dozens of names have gone from the labels to the streaming platforms in recent years and increasing numbers. A recent Music Business Worldwide article lists 57 names, saying it’s just a taster menu from the long list of music industry execs to make the switch to tech.

At first glance, this may not seem like a big deal, but it is. Streaming platforms are no longer the newcomers to the music industry. They are the power players.

The days of two gatekeepers

The shift is easier to understand by taking a look back at how the music industry used to work. Before the internet generated the likes of eMusic and Napster, there were two kinds of gatekeepers- consumer gatekeepers and artist gatekeepers.

The artist gatekeepers were the labels and publishers, the ones with the infrastructure in place to record, press, and distribute music. If you couldn’t get signed, you’d be hard pressed to get your music out there to a large audience. On the other hand, you had the consumer gatekeepers- radio, newspapers, TV, etc.- who controlled which music reached the ears of consumers. If you couldn’t get airplay or coverage, then nobody would hear about you.

Ultimately, if you, your music, or your management couldn’t find a way to get both gatekeepers on board, you were unlikely to break big as a musician.

The days of many gatekeepers

Then came the internet, making it a lot easier to become a gatekeeper.

Control over what music consumers listen to generally shifts to wherever consumers go. And in the 90s and 00s, they went to the internet. Radio has always had a huge grasp over consumer listening habits. But throughout the 80s and 90s, newspapers, magazines, and MTV also had a huge say in what music became popular. But as the internet erupted, so did traditional media's grasp of control. The digital revolution gave way to music blogs, YouTube channels, Facebook pages, and even subReddits that would make names for themselves as new gatekeepers. And with so many gatekeepers, covering everything from jazz to psytrance and hip-hop to deep acid house, everyone had a place to find the music they loved.

All you needed to become a gatekeeper was to roll up your sleeves, find your niche market, and keep churning out content.

The streaming platform takeover

Along came the streaming platforms. At first, they were met with disapproval by the labels. Grooveshark, one of the first major streaming platforms who ignored proper licensing needs, shut its doors after being hit with a $17B lawsuit. But the other streaming platforms learned from Grooveshark’s failure and understood the need for a strong legal team that would secure licensing rights from the labels. Eventually, they won the support of the labels.

They started out as libraries. You could go into the platform and listen to all of the music they owned rights to, which has evolved to include just about everything that’s been recorded digitally. But as they grew, their users encountered the “search box quandary”, or that feeling you get when you’re presented with a massive database of music but no clue what to listen to.

So the platforms set out to solve that. Initially, they just created curated playlists. This helped but never really solved the discovery problem for users- they still had to spend time searching for new music elsewhere. As the platforms attempted to solve the problem, Pandora, then considered internet radio, had found success solving the discovery problem by using a smart algorithm and a team of curators. Instead of searching for new music elsewhere, just type in the name of an artist you like and Pandora will find more similar music.

The streaming platforms quickly followed suit, seeing an opportunity to be far more than just the place you listen to music, but also the place you find it. Spotify and YouTube would quickly offer similar algorithms to their users. With so many players in streaming, discovery quickly became their new battleground for differentiation. Some dropped their algorithms before even using them (ahem, Apple Music), others have found new and unique ways to build different algorithms (Spotify’s Discover Weekly).

Now the streaming platforms have worked their way into the center of music discovery, some with algorithmic playlists (Spotify, YouTube, Pandora), others with curated playlists (Spotify, YouTube, Apple Music). All of them now viewing discovery as a key battleground, understanding the value of becoming the consumer gatekeepers- the ones who control what music consumers are exposed to.

How streaming platforms are taking over the entire industry

Spotify's algorithmic discovery has taken off

Already the place where users went to listen to music, it was easy enough for platforms to become the discovery platform of choice for their users. Spotify’s Discover Weekly hit 5 billion listens just 10 months after launching. With just about 100 million users, that’s about 50 new songs discovered via Discover Weekly per Spotify user.

Now labels have effectively become data companies, looking to the streaming platforms to find the new hot artists. Instead of sending A&R teams out to discover new acts, they monitor things like listens, adds, and skips across platforms to see which artists are worth signing. The power the streaming platforms have should be clear- they own the path to both getting signed and getting heard. Effectively, they’re already more powerful than the labels ever were, becoming the new gatekeepers for consumers and for artists.

And they have yet to hit their ceiling in terms of power within the industry. Their algorithms and curated playlists have a huge say over what their users consume. If they choose to promote a song or album, they can easily draw millions of listens for the artist. Right now, they split the revenue these listens generate with the label and publisher. Which should make you wonder- if they own the ears of fans, why wouldn’t the platforms become labels and publishers themselves instead of losing so much to the labels?

It’s an obvious play for the streaming platforms, given Netflix’s success creating its own content. Spotify and YouTube have already dabbled in creating their own videos and music is the clear next step. For musicians, these platforms can offer unprecedented access to the ears of audiences by placing them on the most popular playlists. And by removing the label’s seat at the table, there’s more pie to go around for the musicians, too.

It’s pretty clear that it’s already happening and the platforms aren’t even being coy about it. Troy Carter, Lady Gaga’s former manager, was named Spotify’s Global Head of Creator Services and ex-Universal Pat Shah was named Head of Original Content Licensing. Apple Music already has former head of Interscope Jimmy Iovine, who has succesfully wooed their own heads of original content. YouTube brought on former Def Jam chief Lyor Cohen.

Some of the faces from the music business exodus.

Basically, the streaming platforms have now set their sights on taking over not only discovery and distribution, but also the creation of music. Since they own discovery, their music will almost certainly be promoted, and they’ll be taking the bulk of the cut, splitting it only with the artists. The labels still have their power in the deals with artists, but with time, artists will see the clear advantages of working with the streaming platforms. And labels could find themselves in an even deeper hole than the one they’re already stuck in.

Innovation as a method of survival

While the streaming platforms are taking even more control over the music industry, there’s still a lot of hope for everyone else. The technological sword that is slowly killing them can also be their savior, if they only embrace it.

Until recently, technology and music were viewed as two separate industries. As they slowly become intertwined, it’s clear that there can be no separation if you want to survive in the long-term. While some still look at the music industry’s state today and see technology as an enemy that cannibalized album sales, it’s actually their strongest ally. Clinging to the old model by finding ways to increase album sales just won’t work. It's not about creating the next streaming platform, either. That's already been done. It's about creating the next thing that provides enough value to consumers to catch their attention.

All they have to do is switch their mindset and understand that they must completely embrace technology. To survive in tomorrow’s music industry, companies will need to not only work with technology, but become technology companies themselves.

In 2012, when EMI sold to Universal and Sony, then-CEO Roger Faxon told reporters that "major record labels, if they ever were, are no longer the gatekeepers. It's the music that matters, not the source anymore. You don't have to have a [major label] to produce an album anymore. The power now is with consumers, not labels."